If you are looking for a way to get a better handle on your finances, personal bankruptcy may be the best option available to you. There are two different types of bankruptcy available to individuals, and the type that you qualify for depends on your income and assets. You should also consider your future financial goals when determining if bankruptcy is worth pursuing.
Chapter 7 Is Known as Liquidation Bankruptcy
Those who file a Chapter 7 bankruptcy case agree to liquidate nonexempt assets and turn the money over to a trustee. The trustee then uses whatever money is available to pay creditors. Whatever debt balances remain are discharged, which means that a debtor has no future obligation to repay creditors unless he or she wants to.
Chapter 7 bankruptcy is available to those who don’t have sufficient money or other assets to pay unsecured debts such as medical or credit card balances. Those who can’t pass the means test will be forced to file for Chapter 13 bankruptcy. Furthermore, debtors who filed for Chapter 7 protection in the recent past may be barred from doing so again.
Chapter 13 Bankruptcy Is Known as a Wage Earner’s Plan
Chapter 13 bankruptcy allows individuals to reorganize both secured and unsecured debts. The debts are repaid over the course of three or five years, and remaining balances may be discharged at the end of the repayment period. In most cases, it is used by those who owe more on a home or car loan than the underlying asset is worth.
To be eligible to file a Chapter 13 case, you need to have a regular income that can be used to repay the debts over the repayment period. Payments are made according to a plan that is proposed by the debtor and approved by the courts. Like in a Chapter 7 filing, the case is overseen by a trustee. The trustee must approve any request to take on new debt during the repayment period or make any adjustments to the repayment plan.
Should I File For Bankruptcy?
Bankruptcy should always be seen as a last resort for those who don’t have any other way to pay their bills. In the event that you find yourself in a temporary financial squeeze, it may be a good idea to pursue payday, title or other emergency loans. Those who have good credit may want to apply for a credit card or take out a personal loan as they come with low rates and relatively long repayment periods.
While bankruptcy is an extreme measure, it may be a smart one depending on your financial circumstances. Those who owe more on a home or car than it is worth may be able to ask for a cram down. This means that the debtor won’t owe more than the fair market value of that asset. It may also be smart for business owners who are looking to limit their losses in the event of a judgment or loan default.
Anyone who is seeking a way out from creditor collection calls or wage garnishment may want to strongly consider filing for bankruptcy. Doing so may make it possible to keep property while also getting rid of any obligation to give more of your hard earned money to creditors each month. Prior to filing, it may be a good idea to talk with an attorney or a financial adviser to learn more about other potential options.